Indra Sistemas, S.A. (IDR) Earnings Call Transcript & Summary

Welcome to Indra's First Half 2020 Results Presentation. I would like now to hand over to Ezequiel Nieto, Head of Investor Relations. Please go ahead.

Thank you. Good evening, ladies and gentlemen. Thank you, everyone, for joining us today for our first half 2020 results presentation. I'm Ezequiel Nieto, Head of Investor Relations. And before starting, let me refer you to disclaimer on Slide #3 that sets up the legal framework under which this presentation must be considered. The conference call will be led by our Chairman and CEO, Mr. Fernando Abril-Martorell, and the intended duration will be around 1 hour. Now let me turn the call to Indra's Chairman and CEO, Fernando Abril-Martorell.

Thank you very much, Ezequiel. Good evening, everybody, and welcome to our conference, and thanks for being with us this evening. As usual, today with me, I have Mrs. Cristina Ruiz, our Chief Operating Officer of Minsait; Mr. Ignacio Mataix, Chief Operating Officer of our Transport & Defence business; and our Chief Financial Officer, Mr. Javier Lázaro. If we move to Slide #4. Let me start by saying that as we have anticipated to you at the time of the first quarter results, the results of the second quarter of 2020 have been heavily impacted by the COVID-19 effects. As you know, this pandemic is affecting all the sectors where we operate. Although the degree of the impact and its expected duration varies significantly from sector to sector, being the most damaged, the airlines, hotels, oil and gas and, at some point, also public administrations. Besides the COVID is also affecting the economy of the main countries where we operate, Spain, Latin America, Italy and some oil-exporting countries, also with different prospects of recovery for 2021. The pandemic is not only causing temporary reductions in our customer sales and results, but it has also structurally changed the needs, which are now driven by trends like massive implementation of working from home, stronger demand for digital channels, e-commerce and contactless solutions, acceleration of artificial intelligent technologies and manned vehicles, increased digitalization and robotization opportunities, redefinition of public administration's spending priorities, also to relaunch economies and also the globalization of supply chains, among others. We have been developing for all these years the necessary technological capabilities to address all these needs, most of them based on digitalization. So we believe this will create new opportunities for us in the medium term. If we move now to Slide #5, we see how COVID is impacting differently our 2 divisions. What they have in common is that both in Minsait and Transport & Defence are suffering from the lower operability of the commercial sales forces, the low oil prices and the currency depreciation in several countries, fundamentally Minsait in Latin America. Diving deeper in Minsait, the order intake, there the impact is mild. It is true that it's affected by lower commercial activity during the first stages of the outbreak because the customers obviously reassess their priorities, and first, they need to maintain the operations running. But now we are seeing some stabilization and improvement in recent weeks. On revenues and margins, this second quarter reflects the full impact of COVID. The margin impact is more severe, affected by the loss of operating leverage, amplified by higher personnel expenses, taking into account that our workforce was sized at the beginning of the exercise for sales growth this year of mid-single digits and also we have some margin contraction. On Transport & Defence, very strong dynamics in the order intake, beating our own internal expectations, the ones that we have pre COVID, mainly boosted by Defence & Security, many of them multiyear contracts, although we will not see the conversion into sales before 2021. The revenues and margins were also affected by the lockdowns and the traveling restrictions in many countries and also by some postponement of decisions from our customers, taking into account the macro deterioration and especially the oil price contraction. This has also created some extra costs in some of our projects. This impact in revenues and margins was also amplified in the short term by the fact that we applied the IFRS 15 accounting milestone recognition method, which means that until we cannot get the milestone, we cannot really recognize revenues nor margins. But this also will lead to, we expect, to faster recovery once the lockdown subsides. If we move to Page #6, we show there the COVID action plan that we have launched in order to adapt ourselves to the new customer needs from our clients. We have 4 main initiatives to reduce our costs and to prioritize our investments under this new scenario. First, we have a reduction of the non-personnel expenses. This measure is targeting non-personnel costs, which are affected by these structural changes and include purchasing internal information systems, communications, external professional services, traveling, supplies and others, and we expect a EUR 20 million positive impact on EBIT and free cash flow from 2021 onwards. Second, we have a review and optimization of our internal processes and systems and also the new workplace model that we are putting in place, reducing therefore the number of premises and office services. All of these, we expect and we estimate that we bring savings of EUR 25 million, both in EBIT and free cash flow from '21 onwards. Thirdly, we are reorienting and prioritizing differently our CapEx investment and balance sheet, and these structural changes that I've commented before on our customer needs is making us rethink the continuity of some of the products and investments based on old technologies, because we believe there is going to be, and we are already seeing an acceleration of the digitalization all across the board. And this has meant the impairment of EUR 95 million, mostly on intangible assets that we have taken in the second quarter of '20 without any cash impact. Finally, the workforce transformation plan. We will start conversations with unions in September about the specific item of transformation of the workforce. This is driven by the structural change of the business and the revenue decrease that we are going through. In summary, with this plan, we expect annual savings of about EUR 100 million from 2021 onwards, with estimated one-off costs of around EUR 165 million, as you can see on the table. In this quarter, the EBIT has already a negative impact of EUR 95 million out of the EUR 165 million due to this impairment of intangible assets, which have been EUR 56 million in Minsait and EUR 39 million in Transport & Defence. All in all, on Slide #7, we are more positive. We believe we face better prospects for both the second half of 2020 and the medium term if we manage to implement successfully our post-COVID action plan, and obviously, always on the uncertainty of the pandemic evolution in the next months but we are really more positive. We see clearly some positive trends that I think it's worth to mention. First of all, as I said before, commercial activity is improving in recent weeks. In Transport & Defence, we expect reversing revenues and margins if the lockdowns are lifted. While in Minsait, we also expect some revenue recovery and lower cost expenses in the first half compared to the first half of 2020. We have positive free cash flow dynamics, and those should continue despite COVID, supported by strong cash collections and more Transport & Defence prepayments that we've already seen some of those during the first half. With all this, we expect 2020 revenues to be in the range of EUR 3,150,000,000 to EUR 3,200,000,000 in constant currency and our EBIT between EUR 120 million and EUR 135 million before the estimated one-off costs of EUR 165 million. This is the one-off cost of the write-offs and also of the rest of the plan, okay? For the medium term, we have a very strong trend in order intake that we believe will continue in the second half of the year. We have a very sizable backlog, which is at record highs, historic record highs. We have a good positioning to embrace new opportunities based on digitalization. And also, if we add to this the positive impact of the post-COVID action plan, we are positive in respect to our revenues and EBIT forecast for 2021 and onwards. If we move then to Slide #8, I will explain the main highlights for the second quarter. I already explained in detail the post-COVID action plan, so we move to point #2. The backlog has grown 15% and has reached EUR 5.1 billion, which is once again a new historic high. The order intake has been 8% up, driven fundamentally by the Transport & Defence division and especially in Defence & Security, which shows a very positive momentum, for the second consecutive year, by the way. Revenues in the first half of the year have decreased 1.5% in local currency, 4.5% in local currency in the second quarter, both affected by the COVID impact. The operating margin, which, as you know, is the EBIT before other operating income and expenses, including staff reorganization, impairments, integration and acquisition costs, fines, amortization of PPAs from acquisitions and the equity-based compensation, amounted to EUR 43 million in the first half of this year compared to EUR 102 million in the first half of last year, which implies minus 3.3 percentage points, and this has been affected by the delays fundamentally, the lower activity due to COVID and also the extra load of personnel expenses that we had in place for a year in which we were planning an important revenue growth. The EBIT for the first half of 2020 has been minus EUR 78 million versus plus EUR 79 million last year, impacted by the impairments of intangible assets that, as you know, is EUR 95 million and also by the delays and lower activity due to the COVID, being the impact more pronounced in the second quarter driving the EBIT to minus EUR 97 million in the second quarter versus plus EUR 40 million in the second quarter 2019. With respect to the cash generation, the free cash flow improved by EUR 149 million compared to last year. And the net debt-to-EBITDA ratio of the last 12 months, excluding the impairments and the impact of IFRS 16, stood at 2.7x versus 2.4x in the second quarter of '19. Additionally, we have reinforced our financial position during the quarter, and now we have more than EUR 1.1 billion between cash and credit facilities as of the end of June 2020. If we move to Slide #9, we show our revenue performance in both the first half and the second quarter. Revenues decreased by 1.5% in local currency and by 4% in reported terms in the first half and stood at EUR 1,484,000,000, mainly as a consequence of the fall in Transport & Defence, which posted a minus 7.5% decrease in local currency. On the opposite, the Minsait division showed plus 1.7% growth in local currency. Revenues in the second quarter fell minus 4.5% in local currency and minus 7.6% in reported terms. And the organic revenues, excluding the inorganic contribution of SIA and the FX impact, fell 3.7% in the first half of the year and 6.6% in the second quarter. For its part, Minsait in the first half posted minus 1.6% reduction in the organic decline. The FX impact in the first half of 2020 amounted to minus EUR 38 million, which represents a higher negative impact versus the first half of '19, in which it was only EUR 9 million negative impact. In the second quarter, the FX impact amounted to minus EUR 25 million compared to minus EUR 4 million in the same quarter last year. If we move to Slide #10, we'll get a deeper insight into the order intake and sales breakdown by region. Above on the slide, we see the order intake. We see that it has increased considerably in America, plus 23% in local currency, posting both Minsait and Transport & Defence growth. Spain went up 15%, boosted by defense, electronic Defense Systems and the surveillance radar for the frigates of the Spanish army. Europe also posted a growth, 5% in local currency, pushed by the strong order intake registered in Transport. However, the order intake decreased in Asia, Middle East and Africa, minus 17% in local currency due to the fact that in the first half of last year, we had a very strong order intake of the urban and interurban ticketing maintenance phase in the Riyadh project. Moving to the middle of the slide, the revenues. It's worth mention that the growth registered in the first half of 2020 in America, plus 7% in local currency, pushed by Minsait. Spain slightly decreased, minus 1%, showing both Transport & Defence and Minsait division declines. Europe went down by 2% in local currency, with both Minsait and Transport & Defence registering some declines. And sales in Africa, Middle East and Africa decreased by 21%, fundamentally affected by the decline in Transport & Defence. Moving to the bottom of the slide, it's also worth mentioning the growth registered in the second quarter in America, plus 7% in local currency, registering both Minsait and Transport & Defence sales, some growth. The revenues went down by minus 4% in the second quarter of '20 in Spain, showing both declines, Minsait decreasing sales in all the verticals, except for Telecom & Media and also in Transport & Defence. Europe decreased 4% in local currency, affected by the Defence & Security vertical. And sales in Africa, Middle East and Africa, fell also 25% in local currency, mainly dragged by the decline in all the Transport & Defence verticals. On Slide #11, we display the backlog evolution of both Indra and our 2 divisions as well as the backlog to revenues last 12 months' ratio. Above on the slide, the Indra backlog went up by 15% in reported terms and reached again a new historic high. And for its part, Transport & Defence grew 22%, and Minsait plus 4%. At the bottom of the slide, Indra's backlog over revenues last 12 months' ratio also reached a new historic high and stood at 1.62x versus 1.39x in the first half of '19. And the Transport & Defence ratio increased to 2.95x versus 2.26x in the first half '19. And the Minsait ratio increased to 0.86x, coming from 0.84x last year. If we move to Slide #12, we see the group's operating margin and the EBIT evolution. And on the top left graph, we see the operating margin that amounted to EUR 43 million in this half versus EUR 102 million in last year's first half. And this is equivalent to 2.9% operating margin versus 6.6% in the first half last year. And this has been affected by the delays, the lower activity due to COVID and also to some extra personnel numbers on average during the first half of the year. Moving to the right graph. In the second quarter, operating margin stood at EUR 12 million versus EUR 54 million last year, equal to 1.6% margin compared to 6.6% margin in the second quarter of last year. On the bottom left, we see the EBIT in the first half of the year that was minus EUR 78 million versus plus EUR 79 million last year same period, impacted by the impairments of the intangible assets, EUR 95 million and also by the delays, the lower activity due to COVID and also the extra personnel costs. Being the impact more pronounced in the second quarter, which has driven the EBIT to minus EUR 97 million coming from plus EUR 40 million in the second quarter last year. Later, both Cristina and Ignacio will get deeper into the contribution of Minsait and Transport & Defence towards the operating margin and the EBIT performance. And finally, from my side, moving to Slide #13, we show the evolution of the total workforce by division. Headcount at the end of June 2020 decreased by 3.5% compared to March 2020 and 4.2% compared to December '19. And this is all by my side. Now let me turn the call to Ignacio, Chief Operating Officer of Transport & Defence.

Thank you, Fernando, and good evening to everyone. Let me move now to Slide #14, where you can see the order intake and the revenues breakdown of our 2 businesses in our Transport & Defence division. The graph on the left shows the evolution of our first half 2020 order intake, which went up by 43% in local currency, driven by the strong order intake registered in our Defence & Security division, which was up 84% in local currency with very material contracts, both locally and internationally. Moving to the middle of the slide, we display the evolution of our first half revenues, which decreased by 7% in local currency. Defence & Security sales decreased by 15% in local currency due to the fall in Platforms and Simulation, the worse first half yearly comparison of Eurofighter and the difficulty to execute projects due to the COVID impact. Sales in Transport & Traffic remained stable in local currency, minus 1% in reported terms, which was a growth in -- posted in Transport of 4% in local currency, offset by the decline registered in Air Traffic Management of 3% in local currency. Here, we also have difficulties to execute the international contracts with the substantial effect of COVID. On the right graph, we show the evolution of our second quarter revenues. Second quarter of 2020 sales went down by 8% in local currency, explained by the falls posted in Defence & Security, which was 13% as well as Transport & Traffic, which was 3% in local currency. If we turn now to Slide #15, we have the operating margin and the EBIT margin of the division. On the -- above on the slide, operating margin stood at EUR 30 million, which is 5.9% margin in the first half of 2020 compared to EUR 61 million, equivalent to 11.1% margin in the first half of the same period of 2019 and EUR 14 million equivalent to 5.6% margin in the second quarter of 2020 compared to EUR 26 million, equivalent to 9% margin in the same quarter of 2019, affected by the lower activity substantially and the delays due to COVID. This operating margin excludes the exceptional costs that are mentioned in the footnote here below. As you can see in the bottom of the slide, EBITDA stood at minus EUR 18 million, equivalent to minus 3.5% margin in the first half of 2020 compared to EUR 51 million, equivalent to 9.3% margin last year in the same period and minus EUR 29 million, equivalent to minus 11.3% margin in the second quarter of 2020 compared to EUR 20 million, which is 7.1% equivalent in the same quarter of 2019. Affected also here by the delays and the lower activity of COVID, which has a higher impact in the second quarter and also affected by the impairment of intangible assets. Now I turn the call to Cristina, Chief Operating Officer of Minsait.

Thank you, Ignacio. Good evening, everyone. Let's turn now to the Slide #16, where we saw the order intake and revenue breakdown of Minsait. On the left-hand side, order intake in Minsait went down 3% in local currency. The falls registered in Public Administrations & Healthcare, 19% in local currencies and in Financial Services, 3% in local currency, were not compensated by the growth recorded in Telecom & Media, 16% in local currency and Energy & Industry, 4% in local currency. Revenue-wise, our digital solutions sales amounted to EUR 248 million, which represents 20% (sic) [ 25% ] of Minsait sales, implying an increase of 12% versus the first half '19, mainly pushed by the inorganic contribution of SIA. Moving to the middle of the slide, we display the evolution of our first half '20 revenues. Sales increased by 2% in local currency, with 3 out of the 4 verticals showing growth. It is stand out by the double-digit growth in local currency in Telecom & Media. Financial Services sales increased by 5% in local currency, showing growth in banking end sector as well as insurance sector with a very good performance in Lat Am, in particular, in payment solutions. Energy & Industry revenues [ increased ] by 2% in local currency. Energy segment posted a slight growth, while industrial segment recorded declines due to the impact of COVID in the sector as tourist or airlines. Public Administrations & Healthcare sales decreased by 9% in local currency due to the fall reported in the geographies -- in all the geographies, Spain and Latin America, impacted by the delay in some [ electoral ] process. Telecom & Media revenues were -- grew by 10% in local currency, with all geographies showing growth. On the right-hand side of the slide, we display the evolution of our second quarter 2020 revenue. Sales went down 2% in local currency, mainly affected by the falls registered in Public Administration & Healthcare, 14% in local currency and Energy & Industry, 2% in local currencies. Let's move now to the Slide 17 to present Minsait profitability. On the top of the slide, we can see the evolution of Minsait operating margins. Operating margins in Minsait stood at EUR 13 million versus EUR 41 million in the first half of '19, equivalent to 1.4% operating margin versus 4.1% last year same period, and minus EUR 2 million in the second quarter '20 versus the EUR 28 million in the second quarter of '19, equivalent to minus 0.5% operating margin versus the 5.3% in the last year same period, affected by the lower activity due to COVID and amplified by the higher personnel expenses because the workforce were sized for a sales growth year. As you can see in the bottom of the slide, EBITDA stood at minus EUR 51 million in the first half of '20 versus EUR 27 million last year same period and minus EUR 58 million, equivalent to minus 13.9% margin in the 2 quarter -- in the second quarter of '20 versus EUR 20 million in the second quarter '19, also affected by the delay in the lower activity due to the COVID, which has more impact in the second quarter and by the impairments of the intangible assets. That's all on my side. Now let me turn the call to Javier Lázaro, our Chief Financial Officer.

Thank you, Cristina, and good evening, everyone. Let's start the financial review with the evolution of free cash flow on Slide 19. At the top of the page, you can see the evolution of the quarterly cash flow over the last few years. And there you can see how this quarter ended at a negative contribution of EUR 29 million, which if you look at years '17, '18, et cetera, you will see [Audio Gap] with the second quarters on those 2 years. And it's actually, in fact, a good EUR 100 million ahead of the EUR 129 million negative that we raised there in the second quarter last year. The strong performance of this quarter -- with this strong performance, the total improvement in the year versus the same period last year goes up to a total of EUR 150 million, reflecting basically the better momentum of the cash flow generation of the company, mostly due to the working capital and all of this despite the COVID crisis. At the heart of this outperformance stands the normalization of our working capital after the very negative first half that we had last year, which we had already anticipated that should happen this year. We will analyze the evolution of working capital further along in this presentation. With these numbers, the cumulative cash flow generation over the last 12 months goes up to EUR 157 million, which is back in the range of EUR 120 million to EUR 180 million, shown over the last few years with the exception of 2019, so as you can see in the graph at the bottom of Page 19. Now let's move on to Slide 20 for an analysis of our net debt. The net debt for the group stood at EUR 670 million at the end of the second quarter this year compared to EUR 552 million in December 2019. And in this activity, we are going to break down the different components of this delta. The operating cash flow contributed positively with EUR 80 million, but this is EUR 60 million less than what we had in the same period last year, reflecting basically the underlying dynamics of the business and the impact of the COVID. Working capital, in this case, was negative EUR 86 million but is EUR 224 million better than in the same period of the last year for the reasons that we will explain in the next page -- pages. If we move along with the further elements of the bridge, you see how CapEx amounted to EUR 35 million versus EUR 41 million in the same period last year. Cash taxes, very similar number from the year before, EUR 11 million versus EUR 10 million. And other financial liabilities, which is basically the impact of the leases under the IFRS 16 that were EUR 18 million. And if you remember, this used to be an element that came under working capital in the past, but for the last couple of years, has been incorporated as a separate item. If you look also along the line interest or cash payments linked to our financing amounting to -- amounted to EUR 19 million versus EUR 16 million last year, which is basically due we explained by the higher interest rates in the short- and long-term loans that we've been raising over the last few weeks and months. Finally, financial investments and other noncash flow items reached EUR 30 million, reflecting FX adjustments, with no impact in cash as well as some small payments related to acquisitions that we made in the past, mostly earnouts and some price adjustments. If we move on to Page 20, we can analyze the evolution of the 3 main building blocks of our working capital, which has increased by 7 days of sales versus December '19 but is actually down 7 days of sales from the level we had in June last year. Let's look at the -- or analyze what happened with working capital during the first half of the year. Inventories increased by 11 days of sales, mostly affected by the delays of milestones and certifications in Transport & Defence. And as we discussed in previous presentations, delays in the certifications of deliveries of our products have a material impact on our working capital and are mostly reflecting in a [ margin ] level of inventories. As you know, IFRS 15 prevents companies from recognizing revenues in some projects unless certain customer milestones are met, which means that you have to keep the expenses related to those projects as a working project item on the balance sheet under the item of inventories. At the same time, these companies are prevented from recognizing the revenues and the margins associated to these projects on the P&L, hence creating the impact that we have discussed in previous quarters and early in the presentation. Even if the meeting of these projects, of these milestones is relatively quick and potentially even inexpensive part of the overall production process, the actual financial impact I have just described will affect 100% of the amounts in both -- in that particular milestone, hence the impact that we are discussing, both in inventories and P&L of these delays, which, as we said, affect mostly our Transport & Defence division. Accounts receivable went down by 10 days of trading in the quarter but by 20 days versus June 2019, reflecting strong customer collections during the period. And I think it's worth noting that our cash collections are ahead of our customer invoices, so reflecting, obviously, some very healthy dynamics in the underlying operations. We are basically cashing in more than what we sell in the -- to our clients. So that is -- that speaks to the health of our revenue numbers. Accounts payable in the period went down by 8 days of sales, reflecting 2 things, mostly the seasonality of the purchases between the first half and the fourth quarter of the year, but also more importantly, a lower level of purchases under procurement during the period caused by the slowdown in activity in the first half in the back of the COVID situation. If we move on to Slide 21, I think it is, yes, Slide 21, we show there the evolution of our net debt and average leverage ratios in these figures, and we have eliminated the impact of IFRS 16 and the extraordinary impairments described earlier in the presentation from the EBITDA figures to make them consistent with the historical series. On this basis, net debt of EUR 670 million in the first half of 2020 translates into 2.7x EBITDA versus 2.4x 1 year ago. Nonrecourse factoring remains once again constant at EUR 187 million, which is the same figure that we have at the end of every quarter for the last few years. If we now move on to Exhibit 22, let's spend a minute on the analysis of our liquidity position. You can see how we have continued to build on our liquidity position, not only preserving cash despite the negative impact of the seasonality of our business in the first half and the COVID in the first half of the year but also by adding liquidity lines in balance around negotiations with our bank pool. At the end of June, we had a total cash of EUR 827 million plus around EUR 300 million of short-term liquidity facilities for a total of EUR 1.1 billion of available liquidity or basically EUR 100 million more than at the end of the last quarter. Also, and we have reflected this also on the bar on the far right of the graph, in the first few days of July, we raised an additional EUR 170 million of long-term facilities, which increased our total liquidity position by a further net amount of EUR 100 million to EUR 1.2 billion. So right now, we have EUR 1.2 billion of liquidity facilities, of which EUR 1 billion is actual cash. I mean, this last move of turning some short-term liquidity lines into long-term lines will allow us to protect our cash position against potential issues in the future should we find any issues in the market that may complicate the refinancing of some of the short-term financing facilities that we had raised. With that, if we now go on Page 23, we -- to finalize the presentation. We take a quick look at the debt structure. We have already covered most of the relevant elements on this page, and this will all sound very familiar to you is the same page as in previous occasions so we'll leave it there for your reference. But let me just reiterate 1 point that -- it's that the one that we have a limited number of maturities between now and the second half of 2022. And also, let me highlight the fact that only 1 of our facilities has 1 sort of financial covenants, only 1 of them. And I'm referring to a relatively small facility, EUR 80 million that we have with the European Investment Bank. It hasn't got a -- leverage covenant is related to the capital covenant with ample room in the current time. So with this, we finalize the results presentation. Thank you very much for your attention. And let's move on to the Q&A session.

[Operator Instructions] The first question comes from Stacy Pollard from JPMorgan.

First of all, given the positive trends in order intake, and yes, how much do you think you can accelerate revenue growth into 2021? Also, has there been any change in the typical duration of the backlog? And then second question, how did the cost savings split between Minsait and Transport & Defence? And does any of the -- well, how does the EUR 100 million benefit sort of flow through 2021? Does it all come at the start or will it kind of gradually sort of uptick as you go through the year? Is that the way we should think about it?

Sorry, Stacy, we are agreeing among us who's answering what. Okay. In respect to our order intake, as we've been telling some, we had a very strong order intake in Transport & Defence, and that should translate into revenues starting in 2021. But it's a little bit -- but a little bit in 2021 and then more strongly in 2022 and onwards, okay. So we will start having impact in 2021 but the full impact will come later than that, okay. We also expect a very strong order intake in the second half of the year. So we believe it's going to be a very good year in terms of order intake, which last year, it was already a very good year in terms of order intake in Defence and this is going to be much bigger. And that will translate in revenues starting in 2021, but as I told you, midyear and onwards. Ignacio will answer you on the backlog duration, which is related.

Yes. It's almost -- I think Fernando, you almost answered. I think we are -- in the Frigate program, hopefully, the 8x8 program, I think all those programs have longer duration than the ones we've been signing lately. So I think we'll see that we have business 5, 7 years. So I think they are good long-term programs.

Okay. In respect -- we are not giving the split of everything, but the EUR 100 million, the expected EBIT improvement of EUR 100 million, we expect it to come most of it from day 1. So we expect that to come almost full of it in 2021 and therefore starting almost from the beginning, okay? And depending on what are the plans, it's affecting more IT or Minsait or Transport & Defence. But basically, on the workforce transformation plan, it should affect more IT than Transport & Defence. In terms of the CapEx investment and balance sheet adjustments, it's also affecting more IT than Transport & Defence divisions. The internal process is improving a new workplace model. It's more balanced, slightly more, affecting slightly more IT than Transport & Defence because this also affects the corporate center and all the repercussions of cost so it's a little bit more IT. And then on the reduction of nonpersonnel expenses, it's more balanced to slightly more Transport & Defence because it has, in the projects, more type of cost, while in IT, the costs are more concentrated on personnel expenses, okay? But we will be giving you more information as we execute the plan, okay? And clearly, we'll give you guidance for next year at due time.

The next question comes from Bosco Ojeda from UBS.

A couple of questions from me. The first one on the restructuring plan. The -- I just want to confirm the cash cost is EUR 39 million. And if -- wanted to ask if there was any impact already, any cash outflow that happened in the first half of the year. And second question I wanted to ask about this European fund -- funding that is going to come into Spain. Presumably is going to be billions coming into Spain. I'm not sure if you can share any views on that but it's probably all very speculative. We don't have a lot of information. But you probably need to prepare the company ahead of that if that is going to be relevant. And wanted to ask, I mean, what sort of preparations you might be doing on that. I think there's funding from digitalization, presumably defense, cybersecurity, I mean, and all of that looks very relevant in size. Do you need to do anything or what are your views on that?

Okay. In terms of the cash, the cash, nothing has gone out of cash so far in the year. So the full impact of the cash is still to come within 2020 but nothing has come back yet. And the EUR 38.7 million incorporates some savings in compared to the plan that we had in CapEx. And then the EUR 45 million that we expect to have cash outflow on the workforce transformation plan that obviously, we have still to discuss with trade unions in September. And we will be giving -- and this is our best estimate, we'll be giving the exact detail of that, okay? But none of the EUR 38.7 million have gone so far in the first half of 2020. Full, all of it, we expect it to happen in the second half of 2020, okay? In respect of the solidarity fund and all these things, first of all, there's already a fund in the European Commission, which is not this fund, which is a defense fund, which is EUR 8 billion. I think it's been locked in EUR 8 billion, but we expect to get things out of that fund. There are some elements to be eligible, but we've already been very successful in the early stages of that. And as you know, we've been the company in Europe that has got the most projects approved, both last year and this year. So this year, we got projects approved for a total of EUR 35 million, okay? And these have to be projects that are sponsored by companies of different countries and so on and so forth, so we are expecting to get funds from that. And then on top of the special fund of defense, we definitely hope to get also funds from this solidarity fund. Right now, we are many companies, and we've been asked to propose opportunities, ideas and initiatives. We have several of those that we believe are eligible, okay, and this will provide opportunities. The idea of the fund is more to do a private-public investment thing. So it's more projects that we might have, in which we might get funds to develop those projects rather than selling into things. Obviously, on top of that, we will be providers of some of other opportunities on the utilization and so on and so forth. So it's nothing specific yet because right now, they are working on the plan and on the ideas, but we definitely have expectations that we will also benefit because we will be eligible in many of our ideas and investments and so on and so forth from this solidarity fund, okay? But it's still earlier stages. Everybody is working on this. Everybody is expecting to get money out of this. So we'll see.

The next question comes from Stefan Slowinski from Exane BNP Paribas.

Two questions, one on the guidance. Just wanted to make sure I understood it correctly. On the revenue guidance, I believe that's in constant currency. So what should we adjust that by to get to kind of a reported revenue guidance? And based on what you did in the first half year, do we maybe lower that by about EUR 80 million at the high end and low end? And also, is the EBIT guidance in constant currency or is that reported?

Okay. The -- we only -- you only have to adjust that guidance to get to the reported by the FX, okay? And the FX, we don't know because it depends. But we expect to be between 80 -- around EUR 80 million in revenues for the full year, something like that, EUR 80 million, maybe more depends, depends how it moves, but it's about EUR 80 million. The EBIT is also in constant currency but the impact on EBIT is much lower. So the FX impact on EBIT should be, for the year, maybe EUR 5 million, EUR 4 million, EUR 5 million, it depends.

Okay. Great -- I just had a follow-up question, just on Minsait and I think you mentioned some competitive pressures there and pricing pressures. And I'm just wondering if -- as you're sort of talking about some more permanent changes happening potentially to the industry, does that change your medium-term outlook in terms of margins or profitability for that business? And when we look at the cost savings and the efficiency plan, does that simply offset some of the headwinds that maybe are becoming more structural to that business and you kind of end up net neutral medium term with what your medium-term targets were? Or as a result of these cost plans, do you think the Minsait business actually, medium term, can be more profitable than you thought it could be 12 months ago, for example?

Okay. Very quickly. Everything is changing. What we do observe in this first half is that we have some margin pressures in some of the businesses in IT for different reasons. For example, in BPO, we have lower profitability because some of the services we were delivering have changed the nature of them. For example, in the banking sector, on the mortgage side, instead of doing mortgages, we've been recoveries, which is different -- so it's been different things that have meant that our profitability has come down a little bit lower. Then the mix has changed because most of our companies have concentrated in maintaining the operations running, and therefore, they have discontinued some of the other short-term projects, consultancy projects, things like that, which obviously have meant that because those projects are higher-margin projects, the mix have also changed. The transformation of the workforce is not -- so we are not seeing that the medium-term outlook is fundamentally changing structurally. We believe there will be still a lot of demand from our clients in efficiency measures and plans to get efficiency, but at the same time, we are starting to see some pickup in activity in terms of digitalization and across the board, not only for efficiency but also for selling and for the kind of business changes that our clients are also experimenting. So we don't see that structurally, the profitability is coming lower. And the adjustment or the transformation of the workforce plan is because, first of all, we are taking off the catalog some products, de-prioritizing some of the products because we believe we are not going to be selling most of those. That's the reason why we have to take some write-offs. We have some personnel linked to those products based on old technologies that we have, obviously, to transform or should change and that's a little bit the rationale for that. Obviously, those savings will help mitigate short term the impact of profitability that we are seeing right now, but in theory, it's not meant 1 thing to compensate the other. They're 2 different things.

Okay. So I guess the conclusion there is if the headwinds are kind of transitory or temporary but the proactive actions are permanent, then the medium-term outlook for the business actually has improved or remained?

We believe that remains, maybe improves. I mean, we see opportunities and accelerating of digital things and some of the products. So that, if it accelerates our change of mix, that should also deliver better margins, okay? So we hope it happens. But we are not seeing necessarily a deterioration, okay? So okay. Again, everything we are saying, there's a lot of still of uncertainty. That's obviously for sure. But with the information we have now and with the kind of vision that we have, that's what we can say, okay? We were more negative clearly 3 months ago.

The next question comes from Ivón Leal from BBVA.

Just maybe 4 questions for me, okay, quick ones. Slide 12, you mentioned EUR 62 million of first half impact of COVID and others. Is that mostly COVID or there are other things? Second one is, how do you measure the COVID impact? The third one, when I look at your guidance, EUR 120 million, EUR 135 million, second half, if I've done my numbers correctly, we're talking about EUR 100 million to EUR 115 million, which would be between minus 17% and minus 27% year-on-year. Does that assume that we're still having some COVID impact in the second half of the year? And the fourth one, and I think I'm getting something wrong here is if I look at 2021, we have EUR 120 million this year plus EUR 100 million of savings plus EUR 60 million of COVID impact would eventually will fade away at some point, okay? So will we be talking about 1 -- EUR 220 million, EUR 280 million of EBIT if COVID fades away finally?

Okay. Let's see if I got all your questions right. The first one is on Page #12, where we say COVID and others. By COVID impact means things that in case COVID had not occurred, we would not have had, okay? So not all the impacts are COVID, okay? But on the EUR 62 million, we have different impacts. It's easier for me to break down on the 2 divisions, if you wish, okay? Okay. The [Foreign Language] Okay. Ignacio can explain the margin impact, the difference between margin last year and this year and where is it coming from, excluding the impairments, okay?

Yes. Okay. First of all, I mean, you have a reduction on margins because of volume. So we are like 8% below [ because of ] the volume impact. Second one is we have cost overruns in projects because of COVID clearly with the difficulty to execute [ certain ] projects. Along with that, we have also, in the first half, we had already in the first quarter but also in the second quarter, lower Eurofighter. I think the second quarter has improved on that and we'll see an improvement on the second half also. And then you have other costs on P&L, which is -- and we'll have a lot of cost of -- in the factories due to security measures of COVID, so masks and all those kinds of things and a few millions in the first half of the year and will continue to be in the second half. But also we have people which are not currently working through projects. So we have a number of people, between 100 people which are on the bench. Also, I think those impacts made the difference in the first half of the year.

And that's EUR 30 million.

And that's EUR 30 million difference all in all.

Okay. And now Cristina will explain the other EUR 32 million.

Okay. If you -- if we exclude impairment amounts, we have more or less EUR 32 million to explain the -- for -- in EBIT, okay? So EUR 3 million are more or less a decrease on sales, okay? Then we have more labor costs that are more or less EUR 20 million. EUR 10 million of them are people at the bench because of the workforce who are sized for our sales growth for this year. So then we have more or less EUR 10 million of people on bench -- at the bench. Then we have [ EUR 2 million ] of people that are additional computer capabilities, [ EUR 4 million ] for SIA and the rest of our investment in commercial capabilities, mainly in Lat Am, in Latin America. Then we have EUR 10 million of loss in margin because of COVID impact. EUR 5 million are BPO process as explained before Fernando, some of the BPO process has changed so that impacting our margins, operation margins in this offering. And then we have more or less EUR 5 million in price pressure, mainly in sectors as airlines, hotels, some very important sector where our clients are suffering and are for the efficiencies in this period. Now we have more or less EUR 6 million in additional profit [ subsidy ] more or less, and some savings, more or less around EUR 8 million on savings, less travel, some saving in costs, in material cost, some savings in...

And that's EUR 32 million. So basically, those are the EUR 62 million. That's the mix. Then your third question, yes. The third question, it is true. We estimate between EUR 105 million, EUR 120 million EBIT for the second half compared to EUR 142 million in the second half '19. This is what we estimate. This is a decline between 18% and 20%, but you have to bear in mind, so it is true that we expect still some COVID impact because obviously, the economies are still dragging a little bit. The clients are still suffering and obviously, we don't expect full recovery clearly in the second half and -- obviously. And this assumes that we don't have -- that the lockdowns are slowly eased, okay? If we were to lock down heavily back, then we might have a different impact. Then in Lat Am, we've -- so far, we've seen no impact really. Clearly, we are well below our budgets but we are above last year in constant currency. We believe this is a little bit delayed. And although we'll continue to grow, it is true that month after month, the rate of growth is slowing a little bit in local currency. So we don't expect as strong Lat Am in the second half as compared to the first, so obviously all that is also affecting, and that's why our guidance, it's maybe taking into account that. But you're right on your numbers. That's exactly what we are saying. Now in respect to the -- in respect to your numbers for 2021, I mean, we are positive on 2021. I mean, we are positive. We are not anticipating what the guidance will be. Obviously, you take into account everything positive. You also have some negatives. We will have salary increases as every year, and most of our projects are not inflation escalated and so on and so forth. But yes, it's difficult to say now what's -- we will be updating you in the following quarters. But clearly, we are positive. And clearly, we believe we will be clearly above EUR 200 million and we'll give you more details. But you are right in the assessment, taking into consideration that we have a very strong backlog. We are confident that we will be able to execute the cost action plan. And as long as the economy recovers some tension, I think we are in the right sector. So we should also improve and get back some of the operational leverage that we've lost. So we are positive on 2021 and onwards, as I said, in...

I guess the concern Fernando here is that maybe the pricing pressure coming from part of your clients has not -- is just starting. That would be...

I mean -- but so far, I mean, we have price pressure every year and from every client, I mean, and in every product, I would say. We are constantly fighting that and we are basically discussing all that. And sometimes, yes, we get pricing pressure but then we get more volume and we get to apply more synergies or we convince them to offshore, and then we can the split the margins or in some of the Transport & Defence divisions, it is some escalating and we are right now far more strict in margins and in how we plan. This is day-to-day, okay? So we face that every day, okay? So -- and that's why our mix has changed. And now 50% of our revenues in Minsait last year were coming from digital, cyber, our own products, third-party products. And that's -- you'll defend that better, okay? And so this is what we have to do, obviously, every time. So we are not -- I mean, obviously, a lot of things could go wrong and so on and so forth, but we are not negative. We are -- I think we are even a little bit optimistic. We'll see what happens.

The next question comes from Fernando Lafuente from Alantra Equities.

Just 2 quick questions, please. The first one is on cash generation and net debt. Can you give us a little bit of indication of what you expect for the rest of the year and what is your best expectation of the debt by year-end? And the second question is on the order intake. I understood, Fernando, you said that the second half of the year looked good also from an order intake perspective. I would like to have a little bit more information about what are the trends that you expect. Which are the businesses or the divisions that should do well? And then having a bit of sense of indeed, just not only for H2, also if you could give us an indication of -- ahead of next year on the commercial trends.

On the cash flow and net debt position, I mean, we are positive for year-end. I mean, we think that -- I mean, if you exclude cash one-offs for the capturing the synergies that we have mentioned and the execution of these measures and exclude the executions, our debt position at the end of this year should be below what we had the year before. So we are positive from that point of view.

Okay. On the order intake, I think we are quite positive on the second half on defense, okay. We still have a number of projects which have a budget ceiling approved. So it should happen. Obviously, everything has risk, as you know, but you have in the second half of the year. So I think we are very positive on that. We had, as we published a couple of days ago, the first FCAS contract. And FCAS should happen also in -- during 2021, the first larger contract. So I think in that sense, we are positive, and we see a constant flow of contracts coming in.

In defense -- with respect to defense side, we are positive too, as Fernando said. We have a very strong pipeline at this moment, and we have very good capabilities and commercial capabilities. We have improved a lot our capabilities in digital and products. And we think that we'll have a very good portfolio of offering that could give us a good position in the market in the new trends in digital, in cybersecurity, in artificial intelligence, and all around our future products because we are stopping the investment in some of the legacy ones, but we have a very good portfolio in digital growth, too. So we are positive. I mean, if everything is okay, and we don't have new surprise in COVID, we expect a very good performance in commercial activity in the next month.

The next question comes from Laurent Daure from Kepler Cheuvreux.

Yes. I have 3 questions. The first one is on the restructuring plan you have announced tonight. Could you be a little bit more specific in terms of the number of headcount, maybe and the split between -- are you targeting billable or nonbillable staff? So any color on this plan will be useful. Also, has it been agreed with unions? The second question is on the trend in utilization rates that I understand moved quite a lot during the quarter. So what is the situation? How many people are in the bench, probably more for IT that question at the end of the quarter? And my final question is back to the depreciation of intangible assets. Can we also have a little bit more clarification of the product you intend to stop? And also the -- when was those expenses capitalized? Was it done years back with the previous management? Or is it some expenses that you have continued in this year?

I'll answer the last one and then Cristina will give you some detail on the projects -- on the products, okay? Most of these products, if not all of them, are products that were in the balance sheet before the end of 2014, okay? And these were products that we did not impair at the time, okay? We have been providing business plans year after year. We entered into an accelerated depreciation plan of most of them. So these are not projects, the ones of Minsait that we've been invested almost at all in the recent years, okay?

Was there some revenues associated with those products or they were [ never ] launched?

No, no, no. These products were launched, were in the catalog and we have revenues associated, and we are not putting all of them out of the catalog, okay? So that's why we didn't written them off totally to 0 because these are residual value because we count on some continuation of this but we are not investing more. Therefore, part of the pipeline that we had in the business plans will disappear because we will not upgrade them more, and that's the reason why we need to impair them, okay? The total amount is about EUR 78 million, and we are impairing EUR 55 million, something like that. The EUR 25 million is residual value because we are still selling, okay? I don't know is that clear? That's important.

Yes.

Okay. That's what the auditor -- I mean that's obviously monitored by the auditor. And Cristina, can give you a flavor of what kind of products are these?

Yes. We have ones that we are evaluating our competitive position of these products, and we are reprioritize the investment to update them. More or less are legacy systems that we have built in the past. For the future, we will continue selling, as Fernando explained at one moment. And the more relevant are revenue accounting, that are the one that we are using in airlines to do their [ gleaning ] between the different airlines, okay? Then we have the customer service for utilities that we have a very good product that we have sold in some countries, South Africa, places like that, Latin America, and we will continue these products in these geographies, but we are not going to update in these products anymore. Maybe we will build another version of these products in the future but based in other technologies and other kind of business around utilities. But we are not going to update in these products anymore, okay? Then we have the core banking, but because we think it's a legacy product, but -- and we think that banking, in general, are not going to invest and renew their core business because they are thinking on create new levels of digitalization over-the-top of their core business. So we think that we will not many opportunities on new banking system implementation. And then we have the same in insurance. We have our core insurance for life insurance, we call Indra Bank. [indiscernible], sorry. And we think the same in banking, the insurance companies are not thinking on free implementation of their core business part. And the last 1 is health care, a product to manage the hospitals, the hospital services. And it's the same that in the core banking system. We think that at this moment, in the next years, we are not going to have in many projects around these kind of solutions. All of them are legacy, not digital, and we are continuing investment -- investing in other products, but not in this one.

Yes. On Transport & Defence, I would say the majority of the projects are R&D projects, which are co-financed by [ Sabeti ] or that type of institutions, which we believe that I think the MOD is prioritizing certain projects, and we think that these investments will not have sales in the future. So there are 3, 4 projects in that sense. And then we have a minor amount on transport projects also, which we have decided to discontinue because we think that we are not going to be successful on sales because of international competitions, and we are not going to be capable to do some sales.

And all of these are intangible assets, okay? So it's not only those projects. These are products and these are intangible assets and always is noncash. Okay. Then very quickly on the bench, we have basically at the end of last quarter in total, Minsait plus Transport & Defence, 637. And at the end of June, we had 630. We peaked at the sort of mid of the quarter but now we are off the peak already, and we are at the same level that we were at the end of March. Remember that in March, in just 3 weeks, we just jumped the number of people very quickly. Then it continues to move up, and now it's back down. So we are right now at 630. And then in terms of the workforce transformation plan, we will talk to trade unions in September. We're not giving you numbers because we -- obviously, we have to discuss with them before, okay? But basically, it's not just taking people that are not -- that are in the bench. It's a combination of things, and it's more relying on the fact that we have sort of legacy technologies that we are discontinuing the products. And therefore, we need to restructure some of the workforce, taking that into account and other elements, okay? But we are not anticipating. We will give you -- obviously, in the third quarter, hopefully, we will give you the full specific numbers and how are estimated and all the details. And we expect to reach an agreement, okay? So we think we will reach an agreement, hopefully.

The next question comes from Toby Ogg from Bank of America.

Two questions, please. So firstly, you talked in the press release about the relatively better outlook in the second half relative to the first. Could you perhaps just give us a feel for the phasing Q3 versus Q4? Should we expect a gradual improvement through the quarters? Or is it shaping up to be more back-end loaded as perhaps we see some more project delays in Q3? And then second question, just on the revenues associated to these products you've decided to impair. Could you just clarify the size of the revenue associated to the products? And then presumably, if you are continuing to invest and update these, should we expect these revenues to gradually fade away over time?

Okay. About the last question that you have. We estimate more or less, the volume of sales that we have around these projects are more or less EUR 100 million. And we've seen that we are not going to lose them in the short term. We have continued selling this kind of product, but we are not going to upgrade them. And we are trying these upgrades will be paid for the clients, not with CapEx in the future. So we will try not impacting volume of revenues.

And I think in Transport & Defence, we expect no impact whatsoever because we were not planning in the -- okay.

So there's no revenues. And then the other question was...

The third quarter.

Okay. I mean -- yes, I mean, we are not giving a split. Obviously, we have as you know, we have a lot of seasonality. And our fourth quarter is very important, okay? So I think we can afford still a mild third quarter as long as the fourth quarter is the good one because that will really deliver guidance. But we've already seen in recent weeks, an uptick in commercial activity. As Ignacio said, the backlog continues to grow, and we continue to be optimistic in new contracts, and that should happen probably more -- that will be more the split. I think we'll have more in the third quarter but that's the point. But the fourth quarter is really very strong always, so seasonally talking is really the strong one, okay?

[Operator Instructions] The next question comes from Gautam Pillai from Goldman Sachs.

Just a couple of quick ones. First was a clarification on the cost savings plan. So the EUR 100 million savings you talk about is at an OpEx level. Are there any CapEx savings as well as you kind of -- all of these intangible assets? And secondly, can you comment on -- I'm just kind of following up on the cash flow comments you made earlier, specifically regarding seasonality in the second half of 2020. Typically, you have a very strong 4Q. Is that what we should expect in 2020 as well, excluding the exceptional charges related to the restructuring? Or is it going to be more evenly split between 3Q and 4Q? And finally, can you give an indication of the Minsait organic growth, excluding the impact of SIA in 2Q?

Javier, the cash flow one.

I can start quickly on the cash flow. Yes, we expect the fourth quarter to be stronger than the third quarter, if only because, as you know, quite a few of our customers are related to some public institutions, and they do have time limits by year-end to spend their budget. So that is something that always has a positive impact. Also in the third quarter, we have in Spain a whole month, which is pretty much idle, which is the month of August, which obviously weighs negatively on that month. So that combination, and I think we'll make history repeat itself and make the fourth quarter the stronger of the half.

Okay. In respect of organic growth in Minsait, SIA is more or less in the first half of the year are more or less EUR 53 million, more or less. So the organic growth are minus 1.6% in the first half of the year. In respect of the second quarter, SIA is more or less EUR 70 million in the second quarter of '20. So in organic terms, Minsait has decreased minus 5.7%, okay.

And then the first question, it was in respect to the...

Any CapEx savings from the restructuring plan?

We have -- this year, we estimate to have about EUR 6 million CapEx savings compared to our internal budget, okay? And that's all. Next year, we'll see what is the CapEx. But none of these measures is necessarily reducing CapEx next year. It is true that the upgrades that we were doing on the products that we are discontinuing, we will not do, okay? But we will have other things and so on and so forth. So this year, we think we will end up with lower CapEx than last year in total. 2020, we will have less CapEx. And next year, we'll see, we'll give a guidance. But none of these items is materially reducing CapEx next year because the things that we will not invest, there will be others and it's still early to know. We start the budgeting process 1st of September, basically. And that the fight will start then.

The next question comes from Nicolas David from ODDO.

First one is a clarification regarding your full year EBIT guidance. Does this guidance include the, I would say, the already expected EUR 30 million restructuring and you -- the level of more or less equivalent to what you had last year? Or is it integrated in your action plan? And the second question is regarding T&D, what percentage of the initial targeted revenue do you expect to deliver on a full year basis this year? Or other way to say that what level of catch-up you expect in H2 and what don't you expect to catch up?

Okay. I mean, to clarify, the guidance that we are giving is excluding the extraordinary write-offs that we did on the intangibles, just the extraordinary ones. So that's not included in that, okay? It's excluded. But it is including the standard things that we do every year. But that here or there, whatever, the kind of things that we're doing. I mean the ongoing that we do every year, that is already included in the guidance. What is not included is the EUR 95 million that we've already took off in the second quarter. And whatever the charge would be for the headcount transformation that we estimate, but still, we need to negotiate that it could be in terms of EBIT impact in EUR 65 million, okay, as per the table, okay?

And regarding the ordinary level, you confirm that it's in the ballpark of EUR 30 million last year or do you believe...

Yes. I mean, we believe it's going to be between EUR 30 million and EUR 35 million, which is slightly more than last year. So that's with respect -- and then you made another question that we missed, sorry.

Yes, the catch-up of end-year revenue in H2 after the slippage you had in H1. What percentage of the initial targeted revenue do you expect to deliver on a full year basis on T&D?

I mean the -- so I don't get it. What is the cash -- I mean, we expect that the second half, we will have a slight decline in revenues for IT and a slight decline in revenues for Transport & Defence division. And that should be better second half compared to the first half, okay? But that's what we expect. And that what gives you to the EUR 3,150,000,000 to EUR 3,200,000,000 constant currency revenues, okay, that's what we expect, more or less, okay? That was the question?

Yes, yes. So to summarize, it was really on T&D, so for H2 in T&D, you still expect a decline on -- a year-on-year decline in H2 for T&D?

[ But we reflect ]. Yes, year-on-year on the second half, the slight decline. The first half there's been very strong decline, okay? And bear in mind that the second half is far more bigger always in T&D than the first half. So the fact that we are closer to last year in the second half for the full year makes a much lower decline. If I...

Yes, yes. I had in mind that you are working on several projects with milestone going on and as you may be able to validate a milestone with the client, you may have a catch-up effect in H2, helping you to grow year-on-year on T&D...

Yes. I mean, we -- there's a combination of things because there are also projects that we should have contracted despite the very strong contracting that we have, but there were other projects that should have translated into revenues early in the second quarter and the end of the first quarter that we didn't contracted. And therefore, it's a combination of things and acceleration of milestones that will allow us to recognize revenues and margins but others that we should have that we had in the budget for the second half will slip into next year. So it's a combination. And the combination means we expect a much better second half than the first half but still slightly lower than last year second half.

And despite, we've done a very good order intake in the first half. Some of the projects were expected to get into the pipeline earlier. So we are not going to be able to start execution on the second half. And even some of them in Air Traffic Management have not come into the pipeline and will come in the third quarter, probably when we expected them in the second quarter, but we were unable to close them out with the COVID situation.

For example, May and June have been very, very strong months for new contracts. And some of those should have come, as Ignacio said, earlier in the year, but came May or June and that gets delayed a little bit so doesn't produce revenues. So it's a combination of things, accelerating of milestone that we can recover sales and then some other things that have slipped. And all in all, we expect slightly decline compared to last year but much closer, okay?

The next question comes from Manuel Lorente from Mirabaud.

My first question is, can you give us the post-tax impact of the EUR 95 million write-off? My second question is related different levers for your full year guidance, especially on the second half. And here, probably the question is whether you are expecting a second half with a similar underlying trend that we have seen in H1. And on top of that, we have to bear in mind roughly another EUR 62 million from COVID and others, partially offset by the reversal of the delays on certifications that you have been -- that you have experienced in H1? No. The way to look at it is that, for example, we are addressing a COVID impact of only EUR 15 million with no reversal. My question is trying to address the potential sensibility of a second wave on COVID. And my final question is on the EUR 100 million cost savings from next year. It is reasonable to believe that part of those potential savings, you might need it to reinvest on further repositioning on digitalization or optimization or you will need extra workforce in some of your new trends. I'm trying to figure out, according to your experience on a midterm basis, from those EUR 100 million, what you might be able to consolidate at the group level.

Okay. I will start with the last one because it's the only one I remember now. I have to come back to the other 2, Manuel. No, we don't expect to have to reinvest or reposition anything beyond what we do every year. So basically, this EUR 100 million as long as we execute them, should be quite visible, okay, and should be long-lasting. First of all, because on part of that, obviously, we need to monitor going forward and so on. But part of that on the expenses of personnel is nonproducing people, okay? We continue to streamline. We've been doing all that restructuring of people as long as we've been growing revenues because that has enabled us to incorporate younger people and to improve the pyramids. The moment the sales are not working and that their sales come down, then the whole structure, obviously, we lose all the operating leverage, and we need to do something which is a little bit extraordinary and also taking into account the change in what we believe is a change in the business going forward and in the needs of our clients. So really, that's quite visible, and there's no need to reinvest. The only thing that will fade a long time is the depreciations of the write-offs that we have taken. Obviously, we will be initially saving about EUR 20 million to EUR 25 million of depreciations, and those will last 2.5, 3 years, okay? Because then that will be totally depreciated because we'll continue to phase it out in the same fashion that we had the depreciation plan before. So that is what you should expect to be sort of losing after year 2.5 or year 3. The rest, we will fight hard to keep it going, okay? Then the second half of the year, we see it better because we see an improving commercial activity. We believe the second half will be clearly better in IT than the second quarter, okay? We see -- we see quite interesting commercial activity. We have a very strong pipeline as well. We have also very strong pipeline of things that we've already presented to clients. We've seen a recovery of some public administrations that this year, we were budgeting it lower before COVID because we had a very strong year last year, but we think things are picking up. And that's what happens in IT. The moment we obviously recover activity, we recover some operational leverage, okay? And that's the reason why we are giving you that guidance. And in Transport & Defence, we explained it before, it will be a combination of being able to meet milestones and therefore, deliver sales and margins. And also because we continue to have a very strong pipeline and we are contracting other things, so that should start to come into revenues slowly, but it will also be adding. And also that will help us the moment we can deliver milestones. We can close contracts. That means we will reduce our extra costs, okay? And that's what we see. Obviously, if there's a second wave of COVID and it's as bad as the first one, then obviously, we'll change our estimates, but we are not thinking in that. We are thinking that things will recover slowly. We are not tremendously optimistic in the speed of recovery of the world. We believe it's going to take time. But even with that scenario, we are quite optimistic on our own prospects. Obviously, tomorrow, everything closed down again, and this obviously -- but that's not what we are -- that's what we're expecting, okay? And your first question, I missed it. Sorry, Manuel.

Yes, the post-tax impact from the EUR 95 million write-off.

And they are telling me that they will come back to you with a number.

Okay. So just for the clarification of my second question. What you are saying is that on your approach to the second half, from the line that appears on Page 12 of your presentation of those EUR 62 million of COVID and others, you are expecting 0?

No. Because if you look at our EBIT for the second half, it's 17%, 20% below our EBIT for last year's second half. So clearly, it's having an impact. We are not having the same profitability in the second half. So as I said in my presentation, it will still be impacted by COVID, but it will not be the EUR 62 million, will be less.

The next question comes from Carlos Treviño from Santander.

My question is related to Air Traffic Management business. All this has been minus 3% in the first half, with some impact from COVID and especially in international projects. I would like to ask you for the prospects for next year. And especially, well, your customers there are in a tough situation. If you perceive that you could have a significant higher pricing pressure from them at renewals ahead of [ next year ] business there.

Okay. Good question. I mean, let me see. We have 2 businesses within Air Traffic Management. One is the systems provided to our clients for the controllers of the Air Traffic Management. Those are longer-term contracts, let's say, the ones we have with the U.K., with Germany, and internationally are longer-term contracts. And those, let's say, are, I would say, difficult to stop, okay? So those will continue. And I will not see growth there but we will maintain the contracts. And then we have what we call communication, navigation and surveillance, which is, let's say, hardware, you deliver, rudders, ILS and so on. And those we are suffering more because, well, there are less new airports or our clients delay the renewal of those investments. And there, we are seeing that we have in this year a fall in those sales. So I think Air Traffic Management within Transport & Defence is the one we have in the shorter term more at risk. I think we have a decent backlog. I think our automatization contracts are stable. And we are discussing with our clients because it's difficult to upgrade the systems when you have traffic growth of 5%. So it's much easier to upgrade the systems, where you have no traffic, which is what is happening today. So we are trying to convince our clients and we are successful. And hopefully, you will see a few contracts in the second half of the year to upgrade the systems now, taking advantage of the low traffic. So I mean, obviously, this is the one that is more at risk. I am not pessimistic, okay, but we'll suffer here on the order intake and on the execution of projects. That answers your question?

Yes, thank you.

There are no more -- sorry.

No, no more questions, no?

Yes. Speaker, the floor is yours.

Okay. So no more questions so thank you very much for attending our conference call. And I remind you that our Investor Relations department are available for taking whatever questions or clarifications, you might still need. Thank you very much. Bye.